A leader is an individual who guides, inspires and organizes a group to reach a common goal. A business leader's effectiveness rests on his ability to communicate the company's mission and persuade managers and employees to act toward that end. Business leadership approaches vary, and they often depend on the leader's personality, the composition of employees and the industry the company inhabits. Most leaders must choose between a formal, structured philosophy and a loose, informal approach.
A major advantage of formal business leadership lies in its hierarchical structure. A company that employs formal leadership techniques leaves no doubt that the owners and executives have the final say in major business decisions. Communications flow down from the top of the structure. The owners communicate their desired outcomes to the managers, the managers issue orders to the employees and the employees carry out their assigned tasks. The executives express what they want and expect those below them to perform accordingly.
One of the biggest disadvantages of formal leadership is its rigidity. In an economy where communications technologies and customer expectations are both constantly evolving, small businesses must remain flexible to survive and thrive. Companies that employ a formal leadership style can stifle the creativity of their employees and limit the flexibility of operations. The top-down communications structure inhibits those lower on the corporate ladder from contributing useful ideas, constructive criticism and potential solutions.
An informal business leadership style depends on shared self-interest among owners and employees. This style allows employees to contribute ideas and offer feedback about management decisions. The informal structure puts management and employees on nearly equal footing, as they all share in both the positive and negative effects of the company's efforts. Owners who employ an informal leadership style often solicit input from employees on every level, from upper management to line workers, to determine the best course of action.
An informal management style can lead to too much data or contradictory opinions that slow productivity. If the owner gives each opinion equal value, she may be unable to reach an educated conclusion or intelligent decision. For employees, the informal style can lead to confusion about who truly makes the final decisions and how far the the owner's authority extends. This confusion can lead to employee job dissatisfaction, lower productivity and even insubordination.